11.11.16

SoftBank Group writes down $555 million in Ola, Snapdeal investments

SoftBank move comes in at a time when both Ola and Snapdeal are looking to raise fresh funds to sustain amid growing competition from rivalsSoftBank in its report stated a loss of ¥58.1 billion from financial instruments for the six-month period ending 30 September 2016 compared to a gain of ¥112.6 billion in the year-ago period. Photo: Bloomberg

New Delhi: Japan’s SoftBank Group Corp. has written down as much as 58.1 billion yen ($555 million) in two of its biggest investments in India, cab-hailing firm Ola (ANI Technologies Pvt. Ltd) and e-commerce marketplace Snapdeal (Jasper Infotech Pvt. Ltd), the company said.

In an earnings report, Softbank stated a loss of 58.1 billion yen from financial instruments for the six-month period ending 30 September 2016, compared with a gain of 112.6 billion yen in the year-ago period.

“Gain or loss arising from financial instruments at FVTPL (fair value through profit or loss) comprises mainly changes in fair value of preferred stock investment including embedded derivatives, such as ANI Technologies Pvt. Ltd and Jasper Infotech Private Limited in India, designated as financial assets at FVTPL,” the company said, explaining the loss during the six-month period.

Since only these two firms have been named, it is likely that they contributed the most or accounted for all of the write-down. A SoftBank spokesperson did not respond to an email seeking clarification and comment.

SoftBank on Monday announced second quarter results, posting a profit of 528.6 billion yen ($5.1 billion), boosted by a favourable exchange rate, as well as by healthy operations in home market Japan.

According to SoftBank, of the total mark-down, 29.62 billion yen was recorded as a loss arising from the yen’s year-on-year appreciation.

The news comes at a time when both Ola and Snapdeal are looking to raise fresh funds. Mint reported in June that Ola was looking to raise $300-400 million from existing and new investors. It needs to raise funds this year to refill its cash coffers and to maintain its lead over rival Uber.

Both Uber and Ola have been burning significant cash in India to win market share by wooing customers through discounts.

Ola has so far raised about $1.2 billion from Tiger Global Management, Matrix Partners, SoftBank Group, Didi Chuxing and several other investors.

Snapdeal, too, has struggled to hold on to its market share and has slipped to a distant number three behind Amazon and Flipkart.

In May, SoftBank, in its quarterly results, indicated slowing sales growth at Snapdeal. Snapdeal’s gross sales, which exclude discounts and product returns, slowed to 90% in the year ended 31 March from 301% in the previous year, SoftBank said then.

An attempt to cut costs and conserve cash in a slow funding environment pushed Snapdeal to shut Exclusively, its online platform for premium and luxury fashion goods, in August.

According to a Snapdeal spokesperson: “At Snapdeal we are focused on driving great outcomes around customer experience, growth and efficiency. On the back of this focus, we have seen tremendous success with the recently concluded Diwali sales season and we continue to build excellent momentum in the business. We cannot comment on accounting practises of any of our investors.”

The write-down is a sign of the times, experts said, and as significant as the number seems to suggest. “In a portfolio that spawns multi-billion dollars, $550 million may not raise too many eyebrows,” said Sanchit Vir Gogia, chief executive at Greyhound Research.

“There is definitely pressure on both sides, investors as well as companies. SoftBank has started putting its house in order,” he added.

Indeed, the focus has changed to the “robustness of the business model” from just revenue and “growth”, said Sreedhar Prasad, partner, e-commerce and start-ups, at KPMG India.

“ Small aberrations in valuations on a long-term investment cycle is not a cause of concern, as future investments will be based on how the business will grow in the coming years,” he added.